Today, we get a reprieve from the last few days of selling pressure in stocks. Overnight, China cut interest rates and reduced its reserve requirements for banks, giving a message to stock investors that for the moment, additional liquidity will be added to the Chinese monetary system. By our count, US stocks as measured by the S&P 500 are down 8% YTD and off more than 10% from the 5/21 highs as of yesterday’s close. The hallmarks of a correction are: that it is a surprise, comes out of nowhere and catches people off guard. We have warned consistently, that the risk of a correction had risen and that stocks were overdue.
Corrective periods set the stage for the next leg up and we need to remind ourselves that asset allocation is key and conviction in the allocation is even more important. Can this correction get worse before it gets better? Sure it can and we wouldn't be surprised if the lows we saw on Monday get tested in the weeks ahead as China goes through a reconstitution of its growth engine, switching from an export based economy to a consumption/import based one. None-the-less, we still hold hold the view that stocks have a great shot at outperforming bonds on a real return basis looking ahead.
About Caldwell Trust Company
Caldwell Trust Company is an independent trust company with offices in Venice and Sarasota, Florida. Established in 1993, the firm currently manages over $850 million in assets for clients throughout the United States. The company offers a full range of fiduciary services to individuals, including services as trustee, custodian, investment adviser, financial manager and personal representative. Additionally, Caldwell manages 401(k) and 403(b) qualified retirement plans for employers.
